Netflix Rebounds But Amazon, HBO Remain a Threat

Netflix appears to have mostly bounced back from the price cut/Qwikster PR nightmare that resulted in a loss of 800,000 customers, but work remains to be done as the service fights off rivals like Amazon and HBO.

Netflix appears to have mostly bounced back from the price cut/Qwikster PR nightmare that resulted in a loss of 800,000 customers, but work remains to be done as the service fights off rivals like Amazon and HBO.

Netflix also plans to add family multiaccount options over the course of the year, where a child's account wouldn't show the movies on a parent't Instant Queue, and vice versa, executives said.

Netflix added 600,000 domestic members in the fourth quarter to reach 24.4 million, the company said in a Wednesday letter to shareholders. That's not as much as its pre-scandal July high of 24.6 million subscribers, but it's an improvement from the 21.4 million it reported in October as annoyed customers ditched the service.

Most of this quarter's additions were to the Watch Instantly streaming platform. Netflix added 220,000 streaming customers this quarter for a total of 21.67 million, helped by gift subscriptions handed out over the holidays. That, according to CEO Reed Hastings and CFO David Wells, was a "faster than expected" recovery.

In its international markets  Canada, Latin America, the U.K. and Ireland  Netflix now has 1.9 million streaming users.

The DVD segment of Netflix continues to decline and is now at 11.2 million customers. As Netflix continues to bulk up its streaming options, however, the company expects that to continue, projecting a loss of about 1.5 million DVD customers this quarter.

Since Sony removed its content last year, the remaining Starz content is Encore selections plus 15 Disney titles. For Encore, "we have plenty of substitutes," Hastings and Wells wrote, and Netflix has re-licensed some titles directly from the studios.

In a related conference call with analysts, Hastings said that Netflix spent twice as much on content during the current quarter as a year ago. Interestingly, Netflix customers prefer older "catalog" releases, executives said, with only 30 percent of the Netflix DVD service subscribers choosing new releases.

"The only significant loss is the current 15 Disney output titles, such as Toy Story 3 and Tangled, which currently constitute about 2 percent of our domestic viewing," they wrote.

A deal with Paramount, however, will add some children's content this year, like The Adventures of Rin Tin Tin, Rango, and Hugo. Dreamworks content is also coming on board next year.

Competition Heats Up
If the Netflix streaming experience doesn't improve, will users switch to rivals like Amazon or Hulu?

Netflix said it expects Amazon to continue offering video services
via Amazon Prime, but would not be surprised if the retail giant also launched a standalone video service a lower price point than Netflix. But Amazon and Hulu have "a fraction of our content," Hastings and Wells wrote, while total viewing hours are each "less than 10 percent of ours." Earlier this month, Netflix revealed that users watched approximately 2 billion hours of content during the fourth quarter.

Hastings also said that Netflix has no plans to add video-on-demand services like Amazon, Hulu, and a host of other services. "It would be seen as a negative, and confuse the brand," he said.

In TV, "catchup TV is a really good model for us," where users can "binge" on a TV show, Hastings added.

Hastings also said that Netflix has no plans to offer video games.

Netflix also dinged Hulu for its ads. "Even if Hulu could afford our level of content spend, at the same price consumers would prefer commercial-free Netflix over commercial-interrupted Hulu Plus."

The company reiterated that its biggest, long-term threat is TV Everywhere, or cable companies bringing their content to the Web. In particular, HBO "will become a much more effective competitor" as its HBO GO mobile platform grows, Netflix said.

HBO recently said it would no longer provide discounted DVDs of its TV shows to Netflix, though there's nothing to stop Netflix from loaning its existing inventory to customers and buying future seasons at full price, so the move was basically symbolic.

Warner Brothers also decided to make Netflix, Redbox, and Blockbuster wait 56 days before they can start offering new releases to rent instead of the previous 28 days. Hastings and Wells said they "didn't like the new release date schemes," but they decided "it was better for our members for us to maintain a direct relationship with Warner [rather than] secure discs through [unreliable] retail and third-party channels."

"Over the next few years, UIs will evolve in astounding ways, such as allowing viewers to watch eight simultaneous games on ESPN, color coding where the best action is in a given moment or allowing Olympics fans the ability to control their own slow-motion replays," Hastings and Wells speculated. "A decade from now, choosing a linear feed from a broadcast grid of 200 channels will seem like using a rotary dial telephone."

The "Internet culture" of Netflix, however, will allow it to innovate and roll out new services faster than cable and broadcast, Hastings and Wells said.

Next week, David Hyman, Netflix general counsel, will appear at a Senate hearing to discuss an update to the Video Privacy Protection Act, so that Netflix members can legally share their viewing activity on Facebook.

Editor's Note: This story was updated at 4:21 PM PT with additional details from the conference call.

Chloe Albanesius has been with PCMag.com since April 2007, most recently as Executive Editor for News and Features. Prior to that, she worked for a year covering financial IT on Wall Street for Incisive Media. From 2002 to 2005, Chloe covered technology policy for The National Journal's Technology Daily in Washington, DC. She has held internships at NBC's Meet the Press, washingtonpost.com, the Tate Gallery press office in London, Roll Call, and Congressional Quarterly. She graduated with a bachelor's degree in journalism from American University...
More »

Mark Hachman Mark joined ExtremeTech in 2001 as the news editor, after rival CMP/United Media decided at the time that online news did not make sense in the new millennium.
Mark stumbled into his career after discovering that writing the great American novel did not pay a monthly salary, and that his other possible career choice, physics, required a degree of mathematical prowess that he sorely lacked.
Mark talked his way into a freelance assignment at CMP’s Electronic Buyers’ News, in 1995, where he wrote the...
More »